Economics And Civil Society

I have been subject to quite a bit of push back on my repeated critique of the anti-democratic nature of orthodox/classical/neoclassical economics.

So I am going to double down on the basis that when you’ve hit a nerve and produce a knee-jerk reaction it is wise to hammer away.

Allow me to restate my opinion in brief: economics in the general tradition of Smith’s invisible hand up to and including the notions of Hayek, Friedman, and their disciples is, at its core, an attempt to conceive of a society stripped of politics. By this I mean it is an attempt to argue that passivity in the face of overwhelming “forces” that are “objective”, “decentralized”, and “systemic” will allow for an optimal distribution of wealth, and the attainment of the maximum possible total wealth compatible with that optimum. All that is needed is a goodly dose of rational decision making, a hopelessly large level of cognitive ability, enormous foresight, and an unobstructed view of absolutely everything. Oh, and under no circumstances ought there be any active interference in the economy to adjust the perfect outcomes. It is a perfect-in-perfect-out wonderland in which no one need concern themselves as to the ethics of the outcome. It is, after all, perfect. It cannot be improved upon. Free markets rule!

This wonderland system, so constructed, will, we are assured, give back to everyone a return justified by their so-called marginal productivity. Mucking around in the system, no matter how well intentioned that activity might be, can only move society away from the optimum. It is, therefore, not possible for government action to improve the distribution of wealth. We all simply have to bow before the system and accept whatever it gives us. Hence the utter passivity of the vision.

And hence the elimination of politics, since it is through politics of various kinds that humans arbitrate life, with economic outcomes merely being one aspect of that life.

I attribute the desire to eliminate politics to an early age in modernity when the world was still cluttered with arbitrary forms of government. The rising bourgeois class needed theoretical justification for a change in the power structure of the economy, and, in particular, it needed a way of neutering the tendency of autocrats, monarchs, and their ilk to get in the way of the accumulation of private wealth.

Thus the success of Smith and his heirs.

To this day economists working in that tradition begin with a bias that all government is arbitrary at worst, or misguided at best. No matter what form of government. It is my contention such economists never took on board the arrival on the scene of democracy. Hayek et al are still fending off the evils of autocracy. They are living deeply entrenched in a past era. They have not adjusted to the reality of representative government when there is almost a one for one overlap between “we the people” as represented actively on the political system, and the so-called agents inhabiting the economic system.

We are asked, by economists in that tradition, to suspend our criticism of people when they acting self-interestedly in the act of exchange, but, at the same time, to be deeply skeptical of the activities of those same people when acting through the agency of representation in politics.

The contradiction is extraordinary.

On the one hand we are all perfectly functioning, almost robotic, rationally driven consumers when we are in the supermarket. On the other hand we are naive, limited, and incredulous when we are in the ballot box. The self-interest of government employees is bad. The self-interest of those self same people as consumers is good.

No wonder right wing economists work hard to isolate the economy as a self-contained entity for analysis. For to admit cross pollination with the political system would be to infect their pristine world with all the evils they attribute to that political system. It would bring their pretty utopia crashing down. It would open the door to the efficacy of active government.

In a democratic system the people who comprise the market are those who comprise the government. To criticize one ought to be to criticize the other. To idolize one ought to be to idolize the other. You cannot have it both ways.

Unless, of course, you disagree with the outcomes of one of the systems.

And since economists working in the Smith through to Hayek/Friedman tradition are unrelenting in their criticism of all things governmental, I can only deduce that they disrespect if not despise democracy. Which, perhaps it escaped their notice, is our current form of government.

Modern economics was born at a time when government was, indeed, too arbitrary for our collective good. It has failed to adapt as we-the-people sought to gain more control over our social outcomes. It is out of step with history. It has become an anachronism that does ever greater harm the more its origins recede from our current reality. It is a relic of an intellectual uprising two hundred years ago, and is content with re-litigating the events of the early 1800’s endlessly. Its relevance to the 2000’s is questionable because of its failure to update its core notions and concepts from those of its inception and early development. What we have now are simply highly polished and formalized versions. The core, with its inherently anti-governnmental bias, remains the same.

So it saddens me deeply to witness right wing attempts to explain modern economic facts such as our level of prosperity or contemporary inequality with, what is effectively, one arm tied behind their backs. By being so in the thrall of so-called invisible hands, so-called free markets, so-called equilibria, so-called marginal productivity and the other paraphernalia of the Smith-Hayek/Friedman tradition, they simply reveal themselves to be anti-democratic. They do not reveal an understanding of that part of modern civil society we recognize as the economy.

And they do not understand history. Which is odd because that’s what they purport to be doing when they deploy the Smith-Hayek/Friedman bag of tricks to debunk Piketty.